2009 (7) TMI 1295 - HC - VAT and Sales Tax

Court quashes auction sale, orders fresh auction with notice, borrower gets loan discharge opportunity.

K. Raamaselvam, R.M. Meenal Ramaselvam, M/s. Shuttle Weaves International, M/s. Meenakshi Fabrics International Versus Indian Overseas Bank

The court allowed the writ petition, quashing the confirmation of the auction sale in favor of the second respondent. It directed the secured creditor to ... - Issues Involved:1. Legality of the auction sale under the SARFAESI Act.2. Interpretation of Rule 9(2) of the Security Interest (Enforcement) Rules, 2002.3. Applicability of alternative remedies and the principle of res judicata.Detailed Analysis:1. Legality of the Auction Sale under the SARFAESI Act:The petitioners challenged the confirmation of the auction sale of their properties by the first respondent (the Bank) under the SARFAESI Act. They contended that the sale was arbitrary, illegal, unconstitutional, and ultra vires the provisions of the SARFAESI Act and Security Interest (Enforcement) Rules, 2002. The petitioners argued that the sale was confirmed in contravention of Rule 9 of the Security Interest (Enforcement) Rules, 2002, as the second respondent was the only bidder, and the bid was at the reserve price, which required the consent of both the borrower and the secured creditor for confirmation.2. Interpretation of Rule 9(2) of the Security Interest (Enforcement) Rules, 2002:The court examined Rule 9(2) in detail. It identified three scenarios under Rule 9(2):(i) The bid is higher than the reserve price.(ii) The bid is less than the reserve price.(iii) The bid is equal to the reserve price.The court clarified that if the bid is higher than the reserve price, the sale should be confirmed, subject to the secured creditor's confirmation. If the bid is less than the reserve price, the sale cannot be confirmed without the consent of both the borrower and the secured creditor. If the bid is equal to the reserve price, the sale can only be confirmed with the consent of both parties. The court rejected the Bank's argument that the sale could be confirmed without the borrower's consent if the bid was at the reserve price, emphasizing that the clear language of the second proviso to Rule 9(2) required such consent.3. Applicability of Alternative Remedies and the Principle of Res Judicata:The Bank argued that the petitioners had an alternative remedy under Section 17 of the SARFAESI Act, which was already pending, and thus the writ petition should not be entertained. The court acknowledged that while alternative remedies exist, they are not an absolute bar to entertaining a writ petition, especially when the issue involves the interpretation of statutory provisions. The court also addressed the Bank's contention that the principle of res judicata applied because the petitioners could have raised this issue in previous litigation. The court found that the previous litigation did not finalize the matter of sale confirmation and that the current issue was neither directly nor indirectly raised earlier. Therefore, the principle of res judicata did not apply.Judgment:The court allowed the writ petition, quashing the confirmation of the sale in favor of the second respondent. It directed the secured creditor to hold a fresh auction with appropriate notice, allowing the second respondent to either withdraw the deposited amount or keep it for participation in the new auction. The costs of the previous and subsequent auction notices were to be debited to the borrower's account. The court also allowed the borrower an opportunity to discharge the loan before the subsequent auction as per Section 13(8) of the SARFAESI Act.